Impacts of postponing phone rate increase

Winahyo Soekanto, Lawyer, Consumer Care Foundation, Jakarta, winahyo@yahoo.com

A double standard is what the government and state-owned telecommunications company PT Telkom applied when they tried to introduce the telephone rate hike -- a plan very recently postponed following heavy-duty public pressure. In explaining the postponement, Minister of Transportation and Communications Agum Gumelar said the fixed phone line user amounted to only 3.7 percent of the 210 million population of Indonesia, anyway.

The minister forgot to explain that the figure referred to registered telephone consumers -- so the number of users would be much higher! If each household has four members, then the number of users would increase to 30 million people! The presence of 220,000 wartel (telephone kiosks) in even the remotest of places has meant even greater access to even more people.

Telkom president Kristiono once referred to these corporate users as, actually, potential customers with an ARPU (average revenue per user) of more than Rp 150,000, and the focus of the telecommunication company's 2002 capital expenditure.

Therefore, it was never true that the planned increase for fixed telephone line rates would affect only a small part of the population. The planned hike would have also affected manufacturing sectors including small and middle-scale businesses -- whose number amounts to 35 percent of total Telkom customers -- as well as more than 32 million users in the consumer sector.

In general, we welcome the government's decision to postpone the planned hike of fixed telephone line rates, but this would not be enough to reduce the public burden caused by the increases in fuel prices and electricity charges.

The following are some possible, more immediate impacts of the postponement in various sectors:

Customers/consumers: This sector is certainly relieved by the postponement because higher phone bills would not create an additional burden on top of those already incurred by the increase in fuel and electricity. Hopefully, the postponement would reduce the threat of inflated prices of consumer goods and services.

Telkom: The state telecommunication company must now revise its 2003 budget, and maybe adjust some planned development activities that were to be funded originally by the expected revenues from the hike. However, even since beginning of the economic crisis, some telecommunication operators (both fixed lines and cellular) have been funding network development with export-import loans -- either from the banks of the vendors' country of origin, or from the vendors' finances.

It is also known that Telkom has conducted some financing strategies including revenue sharing and pay-operate-transfer schemes for two development contracts -- the T21 project and the fixed wireless CDMA, which targeted 1.6 million additional lines by 2006.

Another strategy at Telkom's disposal is to maintain its performance by introducing efficiency planning and eradicating the chronic inefficiency plaguing many of its operations. The possible leak of US$70 million, found during a forensic audit by PricewaterhouseCoopers (PwC) on KSO (joint operating scheme) III West Java in 2001, for instance, remains unexplained. The company has yet to remark whether the report was founded or unfounded. Indeed, Telkom should go a step further by examining whether such a leak of funds could also happen in other regional operations.

Yet another strategy is for Telkom to improve management by selling the numbers of turned out customers, or reducing other instances of idle capacity.

Partners: It is true that Telkom's KSO partners have now lost the benefits they had expected from the planned hike because, according to the KSO agreement, they were entitled to regular price increases. But the public should not forget that the KSO agreement has been revised considerably, following some partners' inability to continue with post-crisis development schemes.

Telecommunication industry: The cellular telephone operators who had planned previously to increase prices, in order to reflect changes in interconnection tariffs subsequent to the planned hike, would now have to postpone their plans as well.

Frankly, the plan for hiking telephone rates was not much more than a ploy to allow Telkom to strengthen its domination and monopoly of the industry. The benefits of the new "duopoly" policy have yet to reach the public in the form of improved services. Indosat, for instance, has yet to benefit from the new policy because it has developed only 20,000 fixed lines so far -- a drop in the ocean, compared to Telkom's 7.5 million fixed lines and 220,000 wartel.

The government, too, does not appear ready to welcome a new player in the fixed line sector -- which would have enjoyed the planned price hike -- when the cellular line sector is actually more attractive to investors.

A competitive industry usually means greater revenues for the parties involved. The government, rather than imposing price increases, should resort to other policies such as increasing the capacity of the cellular sector that, by the way, is already competitive.

Government/telecommunication regulators: This particular party in the telecommunication sector has created confusion because of poor public policy and management. Its insistence on jacking up the telephone rate on various pretexts and its recent decision to postpone it, is a bad precedent and could instead act as a disincentive for foreign investors; this is the price of turning a deaf ear to public protests.

The telecommunication sector will indeed, by all accounts, continue to grow by leaps and bounds, even beyond the projections of various expert consultants. JICA (Japan International Cooperation Agency), for instance, predicted in 1992 that the number of cellular phone users in Indonesia in 2003 would reach 479,000 -- but we know that by the end of 2002, Indonesia already had 10 million cellular phone users.

The industry's growth is indeed unpredictable -- but unpredictable government regulations in the telecommunication sector would not boost growth in Indonesia.

Rather than seeking incentives through price increases, Telkom should find them through innovation and improved services -- especially important when basic voice services would soon stop being the main contributor of revenues, to be replaced by data services.

Indeed, usage is shifting from wired networks to wireless ones, connections are metamorphosing from narrowband to broadband, and most significantly, continuous streams of data are overtaking voice traffic. Telkom thus needs to figure out how to increase sales and profit from their data services.